Massaging the books leads to penalty for accounting firm

The Federal Circuit Court has ordered a small Ballarat massage parlour, its accountant and officers of the employing company to pay penalties totalling $19,100 for contraventions of the Fair Work Act 2009 and Hair and Beauty Industry Award 2010 over a 7 month period ending in July 2017.

During the 7 month period investigated by the Fair Work Ombudsman (FWO), the massage parlour paid its employee on a commission basis, in cash, as a percentage of the cost of massage services she provided, and did not provide her with pay slips.  As a result, the employee was underpaid by approximately $13,500 over this period.  

After FWO inspectors issued a notice to produce documents relating to the employee’s hours of work and pay, the accountant created payslips which purported to relate to the employee during the 7 month period, but which did not accurately record the payment of wages to the employee during that period.  The accountant then sent those pay slips to the FWO in purported compliance with the notice to produce.   

The accountant initially claimed that the payslips had been created for the purpose of calculating how much the massage parlour ought to have paid the employee, and said that they should have been marked in a way that would make it clear they were merely examples. However, after being presented with a copy of actual wage records provided to the FWO by the employee, the accountant quickly admitted that the records it had created were false and misleading.

In determining penalties for contraventions by both businesses, the Court accepted that an amount that may be a modest penalty for a large business may be a devastating penalty for a small business and noted that the massage parlour business had been sold by the time the hearing occurred.  The Court accepted that the former owners of the business were experiencing significant financial hardship, and that the vast majority of the underpayments had been remedied by the time of the penalty hearing.

The penalty imposed on the accounting firm was higher per breach than the penalties imposed on the employer, as the Court found that the accountant was providing professional services which in effect encouraged the employer to authorise it to produce false documents to the FWO.  The Court also noted that failing to comply with record keeping and payslips obligations warranted a higher penalty, because a failure to comply with those provisions makes it very difficult for an employee to determine what their rate of pay is, and whether they are being properly paid.

The penalties ultimately imposed by the Court on both businesses were however considerably less than the total penalties sought by the FWO, which were in the range of $156,880 to $199,040.

For further information please contact:

Sonia McCabe
Senior Associate
T 03 5226 8558
E: smccabe@ha.legal